Fed pick has academic, policy gravitas

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Students of Stanley Fischer (right) have included Ben Bernanke, who recently retired as chairman of the Federal Reserve.

By Binyamin AppelbaumNew York Times
March 13, 2014

NEW YORK — Stanley Fischer has worked for much of his professional life to improve economic policy in the developing world. Now he is on the verge of a new role in a country with plenty of economic problems of its own: the United States.

Fischer, nominated by President Obama to be vice chairman of the Federal Reserve, is likely to move quickly through a confirmation process that begins with a Senate Banking Committee hearing Thursday.

If confirmed, he would join Janet Yellen, the Fed’s new chairwoman, in figuring out how much more the Fed can do to help the economy recover. Yellen proposed his selection to the White House.

Fischer has supported the efforts by the Fed and other central banks to revive economic growth but has described the benefits as limited. “You could do a lot with monetary policy, but you couldn’t get the economy growing fast again,” he said on Bloomberg Television in September. “You needed fiscal policy.”

Self-effacing, Fischer is skilled at making sharp points without making enemies.

Lawrence H. Summers, a former Treasury secretary, suggested at a November conference held by the International Monetary Fund in Fischer’s honor that there were fewer financial crises in the decades after World War II because people had acted prudently.

“Larry,” Fischer responded, “I wonder whether the 35 years after World War II had something to do with the fact that financial liberalization hadn’t yet happened.”

Summers was a major proponent of liberalizing US banking laws in the 1990s, including dismantling the Glass-Steagall Act, which strictly limited the ability of commercial banks to engage in securities investments. Some analysts have asserted those changes made the financial system more vulnerable to the credit crisis that led to the Great Recession of 2007.

Fischer’s prepared remarks before the Senate committee focused on the importance of the Fed’s role as regulator. “The Great Recession has driven home the lesson that the Fed has not only to fulfill its dual mandate, but also to contribute its part to the maintenance of the stability of the financial system,” he said.

Fischer, 70, is widely respected in the world of economic policy. His academic work in the 1970s helped provide intellectual justification for today’s activist monetary policy. His students included retired Fed chairman Ben S. Bernanke and Mario Draghi, president of the European Central Bank.

He subsequently began a career in policy making, including an eight-year run as governor of the Bank of Israel, a job he left in June.

Fischer, born into a family of shopkeepers in present-day Zambia, in a home without running water, amassed a fortune as the author of a best-selling economics textbook and a senior executive at Citigroup. In December, he disclosed assets worth $14.6 million to $56.3 million. He said he would divest some stock and investment holdings if confirmed.

Fischer came to America in the late 1960s for a doctorate at the Massachusetts Institute of Technology, then spent nearly two decades there as a professor of economics.

His most famous work was a 1977 paper that helped ignite a revival of the idea that central banks can stimulate economic activity. He became a US citizen in 1976.

He turned to policy making in the 1980s — a change Bernanke would describe as an inspiration — by joining the World Bank as chief economist. After a brief return to academia, he was appointed as the IMF’s first deputy managing director.

Developing nations were hit by crises during Fischer’s time at the fund, and the changes in economic policy the IMF required from countries seeking its help remain controversial. Typical demands included reductions in domestic spending and greater openness to foreign investment.

“Tens of millions of people were unnecessarily thrown into poverty,” said Mark Weisbrot, codirector of the liberal Center for Economic and Policy Research.

Fischer’s 2002-2005 tenure at Citigroup also has drawn scrutiny. He oversaw foreign operations, working under a contract that allowed him to leave for a “high-level” government job without surrendering the value of his stock options.